Wednesday, February 4, 2009

Asymmetric Pluralism

Andrew Jackson created the concept of pluralism. William Appleman Williams in Contours of American History argues that Herbert Hoover did nearly a century later, but the elements of Hoover's notion that labor and management represent distinct interests that require representation through the state were very much present in Jacksonian democracy. Jackson saw the Democratic Party as the means by which common economic interests could be galvanized or represented against the institutionalized power of paper money and speculation. His creation of the party system along disciplined lines was meant to form resistance to the tendency of economic elites to establish central banking and fractional reserve systems. In this, the spoils system provided economic incentives to party activists that paper money inflation provided to speculators and economic elites. The party system evolved into bossism. Elites were able to characterize it as corrupt, but paper money as altruistic or not corrupt. This was accomplished by identifying paper money issuance with agriculture in the late nineteenth century. This attempt failed in part because the remnant of the Jacksonian philosophy was sufficient to resist it. In the Democratic Party this was through the Bourbon Democrats of Grover Cleveland and in the Republican Party it was through the Mugwumps, the philosophical descendants of Adam Smith and Jackson. The reversal of roles is a pattern seen elsewhere in American political history. For example, in the early twentieth century the Republicans came to advocate reform and progressivism, but by the 1930s this became the pretense of the Democratic Party and the Republicans were painted as the party of business.

The failure of pluralism with respect to the working class in both its major forms, the party or spoils system of the 19th century and the labor movement of the late 19th and 20th century has forestalled the ability of American democracy to be representative. That is, as Jackson foresaw, the "monied" interests have a natural incentive to support banking and paper money, but the working class has a looser interest in institutionalization of its interests. This is in part because the interests of workers are not so well defined and are subject to fluctuation because of changing economic arrangements so that institutionalization is quickly outmoded. It is also the case that the working class has less organizational ability and so allows its representative institutions to be co opted and often corrupted.

There has never been a stigma associated with advocacy of paper money as there was with political bossism or with labor unions. Yet, paper money and fractional reserve banking involve a greater degree of deception and fraud than either of these institutions. Labor unions are depicted not only as corrupt (as in the cases of the Teamsters, longshoring, hotel and restaurant and various construction unions) but also violent. The violence of labor unions is not contrasted with the systematic fraud of fractional reserve banking and paper money. Likewise, the political boss system was painted as corrupt.

The Progressives were the ones largely responsible for attacking the patronage and boss system. This began with the Mugwumps in the 1880s and the Pendleton Act, the establishment of the federal civil service. All states followed suit. This was done in the name of expertise. It is questionable that government bureaucrats have any special expertise or that if Bernanke was replaced by a random name taken from the Albuquerque phone book that the Fed would do any worse than it has. A key result of the emphasis on expertise was the severance of direct incentives to fulfill working class needs from the political leadership. Finding a job for a constituent no longer could be a priority because jobs were now to be filled through rational methods, namely civil service exams. Favors for constituents could now be viewed as corrupt.

The case of Robert Moses in New York illustrates the class-driven asymmetry of Progressivism and its sister movement the New Deal with respect to rationalization. On the one hand, a series of bureaucracies utilizing rational hiring methods was established to build the bridges, parks, highways, housing complexes and tunnels that Moses built. On the other hand, strategic choice concerning where to build, the nature of housing and urban redevelopment continued to occur on the basis of personalistic choice, cronyism and the spoils system.

This is equally true of the Federal Reserve Bank. The Bank claims to scientifically or rationally determine the quantity of money, but the distribution of new money to specific banks is purely due to special interest capture and caprice. A pretense of science overlays the asymmetric spoils system.

Over time, American pluralism has fashioned two forms of representation for the working class. The first, Jacksonian democracy, indeed forestalled the central bank. Until the late 1890s American workers saw rising real wages. The system did not work well for business, property or farm owners, who saw asset values depreciate due to inflation. Populism was a movement of farm and other asset owners, it could not have been otherwise for farm labor had no stake in credit availability. Populism was a movement of land speculators, failed or otherwise, but it also served the interests of Wall Street and business owners, who had been complaining of overproduction for several decades in the late nineteenth century. This was occurring because of innovation and because of deflation, which increased labor's savings (its "demand for money). In turn, labor was able to withstand layoffs because it had savings.

William Jennings Bryan proposed to overturn the Jacksonian system in 1896. McKinley, an advocate of high tariffs, defeated the Populist platform. It was not until 1933 that free silver found its quiet adoption in hyper-charged form via Franklin D. Roosevelt's abolition of the gold standard and illegalization of ownership of gold. This was accomplished with little fanfare because by then the media had been completely co opted and the notion that "experts" could better derive decisions in areas like money and banking had been hammered in the public discussion and in increasingly utilized schools for several decades. As well, the establishment of the Federal Reserve Bank in 1913 inured the public to the use of paper money. The class interest involved in adoption of a pure paper money system was ignored both by the media and by Roosevelt's supporters, who argued, as did John Maynard Keynes, that reduced wages were in workers' interest. They argued this in somewhat arcane terms such as the claim that "aggregate demand" needed to to stimulated. This would be accomplished by eliminating savings by reducing interest and increasing the money supply. The Keynesian system is silent as to the chief issue inherent in paper money issuance--who gets the new money. By default, Keynesianism is a class-based, elitist philosophy that subsidizes banks at public expense. It does so by claiming, as does William Greider in his book Secrets of the Temple, that low real wages are good because they help owners of construction companies and land owners. Greider's book is rife with the double talk characteristic of the Keynesian argument, such as that on the one hand billions are given to interests like the Hunt brothers, corrupt foreign governments like those of Mexico and even more is squandered on frivolous investment and speculative schemes on Wall Street, but that nevertheless inflation helps the poor and middle class, as though the large sums handed to banks come from thin air.

Progressive pluralism thus hobbled the working class in two steps. First, it attacked the ward and spoils system, the basis for working class participation in party politics. It did not eliminate the spoils system for elite jobs but rather for the jobs that would attract working class activism. Second, it created labor unions as representative institutions. This was essential to the Progressive agenda of the National Civic Federation in the early twentieth century, the employer association in which "responsible" big business, labor unions and the public claimed to be represented; it was advocated by Theodore Roosevelt; and it was codified in the 1920s by the Railway Labor Act and in the 1930s by the National Labor Relations Act and the National Recovery Act.

Progressives believed that labor unions would represent workers' interests as employer lobbying, employers' associations and government institutions like the Fed represented employers' interests. However, this was not to be. The Department of Labor is an ineffectual bureaucracy, not a money-printing machine like the Fed. Labor unions were saddled with a primary responsibility of representing workers through collective bargaining and a secondary responsibility of representing their interests in the public policy process. There is an inherent conflict of interest across workers. Public works, for instance, subsidize construction and public sector workers but are paid for by private sector workers. Many workers do not conceptualize themselves as part of a bargaining unit subject to collective representative but rather as individual agents and either part of management or with distinct professional interests. The bargaining responsibilities are inherently at odds with the pluralist responsibilities. Moreover, and most importantly, employers have an incentive to oppose unionization at the shop floor level. There is no such incentive with respect to employers' organizations. Workers have no reason to oppose the ability of the National Association of Manufacturers to represent small industrial firms. But employers have an economic incentive to oppose labor representation of workers because collective bargaining costs the employers in two ways: through loss of profitability and through loss of discretion. Thus, Progressivism never did provide workers with a symmetric voice in the pluralistic process.

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Mitchell Langbert

About Me

I have researched and written about employee benefit issues and in my previous life was a corporate benefits administrator. I am currently associate professor of business at Brooklyn College. I hold a Ph.D. from the Columbia University Graduate School of Business, an MBA from UCLA and an AB from Sarah Lawrence College. I am working on a project involving public policy. I blog on academic and political topics.